Trusts are legal arrangements used by individuals, corporations, and non-profit entities to administer the management of assets for the benefit of another person or organization. A trust creates a fiduciary relationship by appointing one or more trustees to manage the assets in the trust on behalf of the trust’s beneficiary. When making an estate plan, the creation of a trust can be a key tool for business owners and families to manage the eventual distribution of the estate and to help reduce estate taxes upon the testator’s death.
The rules governing the obligations and responsibilities of trustees are set out in Alberta’s Trustee Act. Recently, the provincial government announced the introduction of Bill 12, which proposes replacing the existing Act with one that will help to modernize the current regulations and improve efficiency concerning the administrative obligations of trustees in the province. Below, we will outline some highlights of the proposed changes.
Purpose of the Changes
The changes have been proposed to reduce the administrative burden for trustees, while also reducing the need to attend court, which will, in turn, ease the strain on the province’s courts, which continue to face a backlog in the wake of the pandemic. The Act in its current form is largely focused on trusts created as part of an estate. While this continues to be an important function of trusts, the province wants to expand the focus of the Act to better incorporate specific applications to corporate trusts, particularly in the area of real estate and land development as well as royalty trusts that help to finance the province’s oil and gas industry.
According to Tyler Shandro, Alberta’s Minister of Justice and Solicitor General, the changes will reflect the changing needs of the province:
Outdated trust laws are burdensome for Albertans, trustees and the legal community. By modernizing these laws, trustees will have greater accountability and it will be simpler to create trusts for Albertans. These changes will also ensure that trust laws are current and reflect the needs of Albertans.
The provincial government has indicated that the changes to the Trustee Act will help to increase transparency for trustees and beneficiaries by clarifying trustees’ duties and their accountability to improve protection for beneficiaries.
The new Act will also add increased transparency by adding new duties for trustees as follows:
Duty of Care
Trustees have always owed a fiduciary duty to the beneficiaries of the trust, which requires a trustee to act in the beneficiaries’ best interests. However, under s. 27 of the new Trustee Act, a new duty of care will be imposed on trustees. Under this provision, trustees must act in good faith, and in accordance with:
- the terms of the trust
- the best interests of the objects of the trust
- the Trustee Act
A trustee must also act with “the care, diligence and skill that a person of ordinary prudence would exercise in dealing with the property of another person” unless the trustee’s profession or area of expertise provides them with a greater level of skill. In such a case, the trustee must exercise the level of skill and care afforded by their experience.
Duty to Report and Provide Timely Information to Beneficiaries
There is also a new duty for trustees to provide an annual report to all qualified beneficiaries of the trust. Under s. 29, trustees must provide a report for each fiscal period, which includes the following information:
- a list of the assets and liabilities of the trust, as well as the value of said assets and liabilities at the beginning and end of the relevant fiscal period;
- a basis for the valuation of each asset and liability, if practicable;
- a statement of receipts and their sources for the relevant fiscal period; and
- a statement of disbursements and their recipients for the relevant fiscal period.
Reducing Administrative Burdens
In addition to increased transparency, the proposed changes to the Trustee Act are intended to reduce the administrative burden for trustees by:
- reducing administrative burdens and increasing the efficiency of trusts
- reducing the need to involve the courts by specifying processes so that, in many instances, trustees and beneficiaries will not require court applications for most matters
- providing a basis for trusts that do not have extensive terms, while making sure people can still set their own terms
- decreasing the number of matters going to court resulting in cost savings in legal fees for Albertans, businesses and freeing up court resources
One specific example of how the new Act will help to reduce administrative efforts is concerning the resignation of a trustee. In the current Act, there are no specific provisions to address this. However, Bill 12 proposes the addition of a process to enable a trustee to resign and have a new trustee appointed without the involvement of the court. In the new s. 19 of the Act, a trustee who wishes to resign can do so by providing written notice to:
- the person nominated in the trust as a replacement trustee, or
- the continuing trustees, if any exist, or
- if there is no replacement trustee or continuing trustees, to all qualified beneficiaries of the trust.
Any trustee resigning from their position will also be required to provide a written report to all qualified beneficiaries. The trustee’s tenure as a trustee will come to an end when a replacement trustee is appointed, or when the court discharges the trustee, whichever occurs first.
When Might the Proposed Changes Take Effect?
No specific date has been set for the new Trustee Act to come into effect, but if passed, Bill 12 will become law upon proclamation.
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